CFROI for Private Company

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CFROI for Private Company
John Szypula, Member
Question: I'm using the Return Driven Strategy framework (Frigo & Litman) to develop strategy for a small, private company ($10M sales). My question is, how do I effectively use CFROI with or without an industry benchmark cost of capital? Can I use a more simple metric than CFROI to assess the value/preference of different strategic options?

Francisco Mira, Member
CFROI "needs" to compare it's own measurement with cost of capital so this way it is able to weight value creation.
You could use EVA, also measures value and is less complex.

EVA Advantage for Small Enterprises
Mehul Doshi Doshi, Premium Member
True EVA adds a lot of value.
The area which you may need to add for small company is modify EVA with additional parameters along with its output.
The logic if applicable in your case need to be assessed by you:
Small companies generally have lesser segregation of duties and more overlapping portfolio. Hence the value add is more driven by core team or key stakeholders.
For small companies it is essential to provide them EVA for organization and enable strategic stakeholders EVA compared to other teams. In this manner the management can get perspective of appropriate strategy required for its needs. Worst case understanding and best case understanding. Hope the above helps and best of luck on your assignment.



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